Lululemon: 2014 Can’t Be as Bad as 2013, Can It?

By Ben Levisohn

Shares of Lululemon (LULU) have dropped 8.9% this year, all the more impressive given the S&P 500′s 25% rise in 2013. Even worse, comparable stores Urban Outfitters (URBN), Ross Stores (ROST) and Guess? (GES) have all gained between 1.5% and 47% so far this year.

But now JPMorgan’s Brian Tunick and Kate Fitzsimons have a message for all of Lululemon’s detractors: 2014 will be much better than 2013. They write:

After a 2013 wrought with execution issues, we see multiple levers to reaccelerate top- and bottom-line growth in FY14 and beyond, driven by low- to midteens footage growth, HSD-LDD comp gains, double-digit online growth, and margin recovery over time. 2014 potential catalysts for lulu include: 1) lapping the easier comp and margin comparisons from the 2013 Luon recall; 2) appointment of a new CEO, who could be showcased at the brand’s April Analyst Day; and 3) lulu’s first European store opening in London in 2Q14. LULU’s multiple—while not cheap— could be poised for expansion once a new CEO is appointed and investors refocus on the brand’s top-line and margin recapture prospects in 2014 and beyond.

Tunick and Fitzsimons start Lululemon’s shares with an Overweight rating, boosting the stock to a 3.8% gain. Their $84 price target is 21% higher than Lululemon’s last trade of $69.53 at 2:41 p.m.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.